1,226 posts categorized "Climate Change"

March 30, 2015

I appreciated your recent post in reply to mine on carbon taxes. I've written a reply here where I've tried to make my point more explicitly and clearly, because I think there was some misunderstanding in terms of the case I was trying to make:

Thanks for the clarification. I tried to post a comment at your blog but I haven't gotten email permission in 30 minutes.

The big problem, I think, is that you said "In this way, a carbon tax could make global warming worse." This statement is misleading. If you actually meant to say that a carbon tax could make climate change worse relative to solar innovation grants then it would be more accurate to say that a carbon tax might be less effective at arresting climate change than solar innovation subsidies. Taken out of context, like Tyler Cowen did at MR, the statement can be interpreted to make the case that "free market environmentalism" (for lack of a better term) would be a much more effective non-policy than an actual government policy like a carbon tax. There are many readers out there who would rejoice at this interpretation. Everyone likes a free lunch.

I'm not convinced that solar innovation grants would be more effective than a carbon tax for several (largely uniformed) reasons: how does government pick these winners? Would the innovations affect fixed costs or variable costs? If fixed costs, then that would have less of an effect on price (is that right?). I still think any solar subsidy (per unit or innovation grants) lowers the price path and so we're still talking about reaching the switch point sooner or later. Looking at your graphs, it really matters how elastic vs inelastic those supply curves are. You picked the extremes to make the point but the relative elasticities are not that extreme, are they? And it seems like your model suggests that firms try to maximize market share instead of maximizing profit. If the industry is competitive then in the long run they will earn zero economic profits and then it doesn't really matter how much market share you might have.

Finally, it is hard for me to get past the notion that government should tax a bad thing and not tax a good thing in order to increase the efficiency of the economy. A revenue neutral carbon tax seems like it does just that.

The value of many oceanfront properties on the East Coast could drop dramatically if Congress were to suddenly end federal beach nourishment subsidies, a new study by researchers at three universities finds.

In beach nourishment, new sand, often dredged from nearby inlets or the offshore sea floor, is added to an eroding beach to widen it and help prevent future erosion.

“The expectation that the federal government will continue to provide subsidies for erosion-control measures has significantly inflated property values in many coastal communities,” said Dylan E. McNamara, associate professor of physics and physical oceanography at the University of North Carolina Wilmington. “If these subsidies were suddenly removed, our model suggests values could experience a rapid and dramatic adjustment downward.”

“Values could erode by as much as 17 percent in towns with high property values and almost 34 percent in towns with low property values,” said Martin D. Smith, professor of environmental economics at Duke University. “This would be analogous to the bursting of a bubble.”

Researchers from the UNCW, Duke and The Ohio State University published their findings today in the open-access peer-reviewed journal PLOS One.

Alarming as the new numbers are, the researchers caution that their findings should not be viewed as the last word on the issue nor should they be interpreted as a policy recommendation to continue the federal subsidies.

“This analysis doesn’t include all the factors that affect coastal property values, but the erosion-related factors we examine are important ones, and the model is grounded in hard empirical data,” said A. Brad Murray, professor of earth and ocean sciences at Duke. “We expect our model’s predictions to be close to what could actually happen.”

To assess the effect federal beach nourishment subsidies have on property values -- and what the impact might be if subsidies abruptly ended -- the researchers incorporated historic and current resale values of oceanfront homes on nourished beaches and un-nourished beaches in North Carolina into a specially designed stochastic dynamic optimization model. They also incorporated three types of erosion that commonly affect beach width and stability in the state: chronic background erosion caused by rising sea levels or differences in alongshore sediment transport; sporadic erosion of nourished beaches from storms; and temporary increases in erosion that can occur as beaches adjust to recent nourishment.

By analyzing the data, the model clearly showed that “if the beach is being protected from erosion by nourishment, a large part of the value of the house comes from that protection,” said Sathya Gopalakrishnan, assistant professor of agricultural, environmental and development economics at Ohio State.

Though the model is based on North Carolina data, its findings are broadly applicable, said Gopalakrishnan. “It lines up well with the range of property values and environmental parameters found on most other East Coast sandy shorelines with the exception of a few urban areas like Atlantic City,” she said.

Between 1995 and 2002, the federal government spent $787 million on beach nourishment and has historically subsidized two-thirds of the total nourishment costs incurred by coastal communities. In recent years, however, some legislators have called for deep cuts in federal spending on nourishment or ending the subsidies outright.

“It’s a complicated issue, especially at a time when rising sea levels and increased storminess are projected.” said Smith. “No one wants to foot the bill for unnecessary subsidies. But if you don’t pay for defensive nourishment and end up having to pay more in disaster relief, it doesn’t make economic sense.”

Said McNamara, “Our results suggest that if nourishment isn’t a long-term strategy the federal government wants to use to manage eroding coastlines, a gradual removal is more likely to smooth the transition to more climate-resilient coastal communities.”

Dylan McNamara at University of North Carolina at Wilmington, and Marty Smith and Brad Murray at Duke (although I'm sue Sathya is the brains of the operation).

March 26, 2015

In the demented political mind of Ted Cruz, denying that climate change is caused by humans is equivalent to Galileo denying that the earth is flat (yep, that's the logic). Or perhaps there is a political motive behind this pronouncement (shocking, I know).

The astute will notice that one of these results is not like the others.

The Galileos on climate change are, like Galileo, the scientists. The people pushing back on the science are, like Cruz, those who favor the status quo. Cruz's comments, from start to finish, are simply not correct.

March 25, 2015

CONGRESS long ago established a basic principle governing the extraction of coal from public lands by private companies: American taxpayers should be paid fair value for it. They own the coal, after all.

...let them be received, Not without fair reward (Timon of Athens I.ii.189)

Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976.

This research focuses on the relationship between outside variables and a positive vote by North Carolinians for a new national Renewable Energy Portfolio Standard. Under this new law, electric utilities in North Carolina will be required to meet up to 12.5% of their energy needs through renewable energy resources such as wind, solar and geothermal sources. The Renewable Energy Portfolio Standard would likely increase electric bills for North Carolina electricity consumers. The data for this research is from a 2010 survey of North Carolina residents. The survey had two parts. The first part of the survey was done by telephone and then the same respondents were asked to complete an internet survey. I will conduct a bivariate linear probability model regression and look at the effect of the rise in consumer’s electricity costs on positive votes for the policy. Willingness to pay for the policy will be estimated. The determinants of the votes are variables such as concern for climate change, income, and years to live, etc.

I'll post more on this as we get closer to April 23. But, the department bought a student copy of Limdep and we covered how to estimate the panel model today (after some background reading). On the fly I decided I wanted to do one of those cool video screen shots with a voice over so that it would be relatively easy to work through some new software. I used the Google and found Screencast-o-matic. After less than 10 minutes, including my botched first attempt (which I called a rehearsal), I uploaded my video to YouTube. I used the free version but will probably pay the $15 for teaching my biz stats II class in the fall. I didn't do any consumer research, are there other good products out there?

From Adam Ozimek, here are some very good points, which I had not previously pondered:

…what a carbon tax does is push the required cost threshold up. This would allow solar to become the more profitable source of energy in the US sooner and increase the speed of its dominance here.

However, a carbon tax would raise the threshold in the US relative to the threshold for developing countries. In other words, the race for solar companies in the U.S. becomes to be cheaper than dirty energy + a carbon tax, which is a higher threshold than being cheaper than dirty energy alone, which is the threshold in many developing countries.

It is easy to see how this could cause downward march in solar costs to slow, and as a result solar would reach the threshold for China, India, and other developing countries perhaps much much later.

If this is true, it would suggest that for clean energy to become globally dominant faster it’s better for the U.S. to just subsidize solar innovation and let the untaxed U.S. market price of dirty energy stand as a strong incentive for solar to drive costs lower.

To see this, consider a world where solar was already dominant in the U.S. with current technology and costs, perhaps via a total ban of dirty energy. The supply curve of the installed base of solar technology would be much more price inelastic than the supply curve of today’s installed base of dirty energy due to higher fixed costs and lower marginal costs. This means a steeper residual demand curve for marginal innovators that provides less market share rewards for marginal declines in price, and therefore lower rewards for marginal cost cutting.

First, a subsidy for solar would act just like a tax on oil and coal in terms of timing. To see this consider a standard model of the "switch point" (below). The brown lines (dirty = brown, get it?) are the Hotelling price price and the price path with a carbon tax. The green lines are the prices of the backstop (clean = green, get it?) fuel with and without a subsidy. Point A is the switch point with no government policy. A carbon tax and a clean fuel subsidy leads to about the same switch point (points B and C).

Second, once the clean fuel grabs market share it still has the incentive to reduce costs. Just like any group of business firms that operate in a competitive market, each firm has an incentive to cut costs to grab market share from its competitors. It is not true that once the solar industry grabs the market share it is done innovating. I think this makes the developing country argument irrelevant.

SecondThird, I have no idea what is going on in the paragraph beginning with "to see this." Why would clean fuel supply be more inelastic if there is a ban on dirty fuel? I don't think the number of demand side substitutes affects the cost structure of an industry. This result doesn't show up in the micro textbooks (including managerial economics for MBAs), is it in the industrial organization books? And why does the residual demand become more steep? With the strawman of a ban on dirty fuel this might make sense because there are fewer substitutes. But at the switch point there is no ban, the dirty fuel substitute is always there.

So, I don't see how a carbon tax could make climate change worse. What am I missing?

Also, Ozimek goes on to say:

There are some alternatives to this view though. First, is that taxing dirty energy and using all the money for subsidies of clean tech innovation is really more efficient than subsidies without taxes. And after all, the money for subsidies will need to come from somewhere. In addition, one can imagine that economies of scale and learning by doing are extremely important in this industry. This would mean solar companies taking over the U.S. market will accelerate the decline of costs and speed up the point where it becomes cost competitive for the rest of the world.

This is point D in the diagram. I don't know if point D is more "efficient" than B or C. It does hurry up the switch point but efficiency really depends on the benefit-cost analysis and determining the optimal switch point.

CONGRESS long ago established a basic principle governing the extraction of coal from public lands by private companies: American taxpayers should be paid fair value for it. They own the coal, after all.

Lawmakers set a royalty payment of 12.5 percent of the sale price of the coal in 1976. Forty years later, those payments remain stuck there, with actual collections often much less. Studies by the Government Accountability Office, the Interior Department’s inspector general and nonprofit research groups have all concluded that taxpayers arebeing shortchanged.

This is no small matter. In 2013, approximately 4o percent of all domestic coal came from federal lands. A recent study by the independent nonprofit research group Headwaters Economics estimates that various reforms to the royalty valuation system would have generated $900 million to $5.6 billion more overall between 2008 and 2012.

This failure by the government to collect fair value for taxpayer coal is made more troubling by the climate-change implications of burning this fossil fuel. Taxpayers are already incurring major costs in responding to the effects of global warming. Coastal infrastructure is being battered by sea rise and storm surges; forests are being devastated by climate-aided pest infestations; and studies are suggesting that temperature rises have increased the likelihood of devastating droughts in California.

Moreover, as the Council of Economic Advisers documented in a report last July because of the long-lived nature of greenhouse gases in the atmosphere, these costs will continue to rise.

The Interior Department, which manages energy resources on federal lands, has acknowledged that reforms are needed. In January, the department took a first step by proposing more scrutiny on the self-reported sales that coal companies use as the basis for royalty payments. It also must address other well-documented problems, including large discounts routinely applied to these payments, and noncompetitive lease sales.

But the department should not stop there. The federal government should also take into account the economic consequences of burning coal when pricing this fuel. The price for taxpayer-owned coal should reflect, in some measure, the added costs associated with the impacts of greenhouse gas emissions. ...

March 17, 2015

EPA estimates that the costs of compliance would range from $5.5 billion to $7.5 billion in 2020 and from $7.3 billion to $8.8 billion in 2030. According to other estimates, however, the potential costs could be much higher.[9]

The NERA study, prepared for an assortment of energy industries, finds that the present value of costs would range from $366 billion to $479 billion from 2017 to 2031. This is roughly about twice the EPA estimates.

March 10, 2015

In other words, some people don't like measuring the benefits of climate change mitigation:

Senate Republicans are criticizing the Obama administration for using what they see as an opaque, secretive process to calculate the costs associated with climate change.

Led by Environment and Public Works Committee Chairman Jim Inhofe (R-Okla.), 11 senators wrote to the White House Office of Information and Regulatory Affairs (OIRA) Monday to investigate the administration’s social cost of carbon.

The administration uses social cost of carbon to calculate the societal benefits of regulations that reduce greenhouse gas emissions that are believed to cause climate change.

The Obama administration currently pegs the cost of carbon emissions — and the benefit of reducing them — at $37 per ton.

“Congress and the American people deserve greater transparency and government accountability regarding the social cost of carbon — a theoretical measure of climate change damages the administration uses to justify onerous regulations,” the senators wrote.

March 04, 2015

These estimates of energy-related carbon dioxide (CO2) are based on the State Energy Data System. The state data include a summary table with total energy-related CO2 by state beginning in 1990, a table with emissions by fuel in 2012 and a table with emissions by sector in 2012. Detailed tables for individual states provide emissions by fuel and sector for data beginning in 1980. Documentation for methodology is also included on the page.

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